UVA fixed terms: how much do the only deposits pay that beat inflation and that the banks do not want you to know

UVa time deposits are the only deposits that cover against inflation.

The Central Bank (BCRA) had to reinforce the regulation that obliges commercial banks to offer their clients the option of making time deposits adjusted by the UVA index plus a rate of 1% per year. The instruments, reserved for natural persons and since yesterday limited to amounts up to $10 millionThey are the only banking vehicles that protect savings against rising prices and yield more than a traditional fixed term. But the banks don’t want to offer them because they have no way to put those pesos in the form of inflation-adjusted loans.

The BCRA reestablished that banks must offer fixed terms adjusted for inflation through all its service channels, both face-to-face and electronic. In this way, financial institutions they will have to allow their clients to establish fixed terms in UVA through home banking, telephone banking and mobile apps.

In fact, the decision made known yesterday by the Central Bank’s board of directors was already in force. For banks, it was already mandatory to make available by all means the fixed terms “UVA + 1%”, as 90-day deposits are called in banking jargon, adjusted for inflation plus a minimum rate of 1% per year and that can be canceled in advance after the 30th. However, In the last two months, many banks began to “hide” UVA time deposits within their electronic channels.others directly withdrew them from their home banking and some demanded to do them only in the branches, something anachronistic before the advance of digital channels.

“Financial entities must offer the direct contracting of these investments, regardless of the term of collection, by all means”, established the BCRA yesterday. They must be offered through “all available means that the entity has, both face-to-face and electronic, including web term placements”, he added.

As a concession to the resistance of the banks to offer this type of deposits, the BCRA yesterday set a limit on the amounts that can be placed in this type of fixed terms. As it already exists for traditional fixed terms with a minimum annual rate of 68.5%, now the banks will be obliged to offer the possibility only to human persons and for amounts of up to $10 million.

Inflation-adjusted deposits are highly sought after by savers with surplus pesos that are not going to be used in the very short term because they are the only ones that guarantee a return that beats inflation. As against, they have the fact that the minimum term is 90 days (with the option of pre-cancellationbut in that case the return is at a fixed rate -much lower- and not adjusted for inflation), unlike the traditional fixed term that can be placed at 30 days.

For this reason, and because your capital adjusts at a higher rate thanks to the UVA yield itself, so far this year the stock of pesos deposited in UVA fixed terms grows 141% against the 60% growth experienced by traditional fixed terms in the same period.

What is the attraction? Traditional fixed terms systematically lose with monthly inflationalthough today they are above the short-term inflation estimates, while the UVA fixed term manages to exceed it.

Y traditional fixed termthe 30 days pay today 69.5%. A return that in 30 days represents 5.79%. assuming a saver who placed $100,000 today in three fixed terms of 30 consecutive days -to equate the minimum term of a UVA deposit- within three months I would have 118,400.73 pesos.

In the case of fixed installments UVA it is not possible to know precisely what the return will be in 90 days, because it depends on monthly inflation data that we do not yet know. But yes I doe can be estimated based on inflation expectations revealed by the BCRA itself.

One of the inflation data that will influence deposits made today is already known, it is the 7.4% for July already reported by Indec. But in addition, the BCRA’s Survey of Market Expectations (REM) shows that for the month of August inflation is expected to hit 6.00% and in September it will reach 5.50 percent. The estimated data continues with 5.30% for October, 5.00% for November and 5.10% in December.

Assuming that these estimates are correct, a UVA that is worth $142.83 today would reach $170.13 in 90 days. Together with the 1% annual rate on the principal, the result of placing $100,000 in UVA time deposits today in 90 days would amount to $119,405.93, that is, $1,005.20 more than a traditional time deposit.

The difference does not seem to be huge, but it has a plus. If the inflation figures end up being higher than those estimated in the REM, the nominal yield will be even higher. That is the advantage of hedging for inflation.

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